The dollar slipped today ahead of US retail sales figures that were expected to show more economic weakness, while repatriation flows linked to USTreasuries also put downward pressure on the currency.
The yen inched up as Tokyo stocks trimmed early gains due to weaker Chinese equities, cooling demand for risky assets and prompting investors to unwind carry trades, in which they sell the low-yielding Japanese currency for assets in high yielders.
Economists polled by Reuters estimate that retail sales slipped 0.2 per cent in January after a 0.4 per cent decline in December, but rose 0.2 per cent with auto transactions excluded.
"A somewhat weaker number is already factored in," said Joseph Kraft, managing director of Japanese capital markets for Dresdner Kleinwort in Tokyo. "The question is how much weaker it's going to be."
Market participants say that a downside surprise in the figures may bolster the argument that the slowdown in US growth may yet continue, which would further fuel the belief that the Federal Reserve will cut rates next month to avoid a recession.
The dollar slipped 0.2 per cent to 107.05 yen, also as some Japanese investors sold the US currency to repatriate funds linked to maturing US Treasuries and Treasuries-related coupons, which come up for payment later in the week.
The US Treasury will make $26 billion in coupon payments on Friday, while $54 billion in Treasuries will mature on the same day.
The Nikkei stocks average ended 0.4 per cent higher, but pulled back from early gains as Shanghai stocks slid more than 1.5 per cent as investors returning from a week-long break for the Lunar New Year holiday sold shares on worries about global economic weakness.
Stock markets often influence currency swings, since investors see the equity market as a barometer of risk demand. A rise in equities shows stronger risk appetite, which can prompt investors to sell the yen in carry trades, while weaker shares can trigger short covering in the low-yielding currency.
The euro traded 0.1 per cent lower at $1.4570, not far from the day's low of $1.4560.
The single currency was pressured after a surprisingly strong reading of German business sentiment yesterday did little to alter speculation that the European Central Bank may cut interest rates from 4.0 per cent in the next few months.
The euro slipped 0.1 percent to 156.25 yen, having fallen to the day's low around 156.05 yen.